Troubled Toshiba to Split Into Two Firms Instead of Three

(Bloomberg) -- Toshiba Corp. said it would divide into two companies and sell non-core assets, scrapping an initial three-way split that faced fierce criticism from activist shareholders.

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The Japanese tech giant plans to spin off the devices business, which includes semiconductors, and list it, Toshiba said in a statement Monday in Tokyo. It scrapped an earlier plan to separate out its infrastructure operations, which will instead continue to come under Toshiba. Splitting into two companies would be cheaper and smoother than the original plan, it said.

Toshiba also designated Toshiba Tec Corp., its listed electronic equipment business, as a non-core business, it said, though it stopped short of saying it would sell the unit. The company will also use 300 billion yen ($2.6 billion) of excess capital for shareholder returns over two years, it said.

Shares of memory-chip business Kioxia Holdings Corp. will continue to be held by Toshiba, it said, but the firm will seek to monetize the shares “immediately” and return proceeds to shareholders. Kioxia has been pursuing an initial public offering, but has also been reported to be in talks to merge with Western Digital Corp.

Toshiba has requested an IPO of Kioxia as soon as possible, Chief Executive Officer Satoshi Tsunakawa said at a briefing in Tokyo on Monday.

Toshiba will also sell a 55% stake in air-conditioning business Toshiba Carrier Corp. to its U.S. joint venture partner Carrier Global Corp. for about 100 billion yen, it said earlier Monday.

Activist Pushback

Toshiba shares erased earlier losses to jump as much as 4.5% after the plan was announced. Shares in Toshiba Tec surged as much as 15%, the most since 2016.

The new plan is “more logical given the overlap in semis and devices,” said Justin Tang, the head of Asian research at United First Partners. The proposal offers more synergy than before, while investors should welcome the clarity over Toshiba Tec, he said.

Toshiba, once among Japan’s most revered companies, has been in crisis mode for years due to repeated scandals and management missteps. It invented flash memory for computing, but had to sell control of its crown jewel semiconductor business to pay for a disastrous expansion in nuclear power.

That deal opened the door to activist investors who have pushed for change. They include Effissimo Capital Management Pte and 3D Investment Partners Pte, which are the two largest shareholders with 10% and 7.6% stakes respectively, according to data compiled by Bloomberg.

Tsunakawa said last year he believed the three-way split, into infrastructure, memory chips and devices entities, was best for the company and stock holders.

But some of Toshiba’s largest shareholders pushed back strongly against the plan, with 3D Investment opposing it and requesting that an upcoming vote on it would require a two-thirds majority. Farallon Capital Management, another large shareholder, backed 3D’s calls.

Tsunakawa on Monday denied that the changes were prompted by pressure from activists. He also suggested that a forthcoming vote on the plan at an extraordinary shareholders meeting set to be held by the end of March would require only a simple majority, though he added no decision had yet been made. Toshiba has yet to announce when the EGM will be held.

(Updates with comments from CEO Tsunakawa from fifth paragraph, analyst quote in eighth paragraph)

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